Please enable JavaScript.
Coggle requires JavaScript to display documents.
1.4 - Coggle Diagram
1.4
Normative (Rational) Decision-making
A formal process of systematically analyzing options
To be rational is to maximize outcomes (utility)
Assumptions
DM has the time, cognitive ability and resources to evaluate each choice
DM objective is to maximize the outcome
DM has full, accurate and objective information about alternatives
Axioms
Decidability
The ability to decide a preferred decision
Transitivity
if A is preferred to B, and B to C then A is preferred to C
Invariance
surface structure should not influence the DM choice
Independence of utility and probability
Avoid wishful thinking
Under perfect conditions, normative decision making could aid DM's to make decisions that yields to maximize expected utility
The Normative Decision Theory
making rational decisions based on calculating and comparing subjective expected utility (SEU) denoting the attractiveness of an outcome associated with a given choice.
The use of decision analysis
Decision Matrix
Expectation Calculations
Decision Trees
Theories of Decision-making
Normative Model
what should be done to make a rational decision
Descriptive Theories
focus on what have been done and how
developed as Mathematical model or in behavioral terms
Prescriptive Theories
focus on challenges in making decision
Uses the information from challenges to prescribe procedures to follow for a good decision
Descriptive Models of decision making
developed by researchers to demonstrated how judgement and decision making deviates from traditional rational expectations
Predictable errors and biases
self-serving bias
confirmation bias
motivational bias